Working capital is the fuel that keeps your business running day-to-day. It's the money available to pay suppliers, cover payroll, and buy inventory. Too little and you can't operate. Too much and your money is sitting idle instead of growing the business.
Working Capital = Current Assets − Current Liabilities
Positive = Healthy | Negative = Danger | Zero = Just Getting By
Send invoices immediately. Offer 2/10 Net 30 discounts. Automate payment reminders. Use online payment links.
Implement just-in-time ordering. Clear slow-moving stock. Use demand forecasting. Negotiate consignment from suppliers.
Negotiate longer payment terms with suppliers. Use the full credit period. But never damage supplier relationships.
Sell outstanding invoices to a factor for 80-90% immediate cash. Useful when customers have long payment terms.
Maintain a credit line for seasonal or unexpected needs. Only pay interest on what you draw — flexibility matters.
Track receivable days, payable days, inventory turnover, and current ratio weekly. Catch problems before they become crises.
Working Capital = Current Assets − Current Liabilities. It's the money available for day-to-day operations
Ideal WC ratio: 1.5 to 2.0. Below 1.0 = liquidity risk. Above 3.0 = potentially idle resources
Three levers to optimize WC: collect receivables faster, reduce inventory, extend payables (respectfully)
Working capital is a balance sheet metric (point-in-time). Cash flow is a period metric. Both matter
Financing options include overdrafts, factoring, revolving credit, and supply chain finance — use the cheapest option that fits your cycle
You now understand cash flow management, budgeting, break-even analysis, and working capital — the four pillars of business financial management. Continue with Payroll & HR or start using Laabam.One to automate your finances.